Renewable Natural Gas Potential 'Just Scratching the Surface,' but Obstacles Remain - Natural Gas Intelligence

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New buyers are emerging for the renewable natural gas (RNG) market, which has historically been driven by the transportation sector, industry experts said Monday.

Sustainability and voluntary customers, which are companies and institutions looking to clean up their carbon profiles, have become a key emerging trend, Innova Energy Services CFO David Tucker said at the LDC Southeast Gas Forum. However, high prices and short contract terms continue to be an impediment for many, he added.

“Honestly, they want to buy RNG but then when they find out the price, they’re going ‘nevermind, I’ll wait,’” he said. “So voluntary companies are going to have to attract RNG away from the transportation market, or find new sources of development.”

Commitments on the renewable identification number (RIN) market, used by the U.S. Environmental Protection Agency to track and enforce compliance with renewable fuel mandates, are relatively short at one or two years, Tucker said.

“So the commitment is short, and the price is high,” he said of renewable fuels markets that include RNG. “So for new projects to be developed, or to compete for existing RNG,” longer term contracts are necessary, as well as “a little bit lower price, more of a balance…Because if you’re a project trying to get funded, it’s very difficult to get funded when you can only secure a market for one or two years.”

Buyers are also seeking a uniform standard for RNG. 

“There are a couple of organizations…trying to develop a standard so that sustainable buyers can go and point to something and say ‘this gas is this green.’” Tucker said.

Not all states have low-carbon fuel standards, and those standards that are in place vary from state to state. “Not all RNG is the same,” Tucker said.

RNG has ballooned in the United States over the past few years, with the number of projects increasing by 42% from early 2019 through 2020. Supermajors have also waded into the RNG space, with the likes of BP plc, Chevron Corp., and TotalEnergies SE announcing investments.

Growth in biogas was also seen in the RIN market last year, as fewer credits are anticipated to be required for compliance as transportation fell because of the Covid-19 pandemic. 

“Fewer RINs were produced in 2020 than in 2019,” said Eversheds Sutherland partner David McCullough. “But for biogas, there still was significant growth.” That could raise the question of whether there is an excess of RINs on the market, he said. However, the market expects the Biden administration will soon roll out “robust” standards for 2021 that will “eat up” that supply.

“Some of the open questions are how the Biden administration is going to take into account what will likely be increasing amounts of RINs generated from biogas turned into electricity and then used to power an electric vehicle,” he said. “And so EPA will need to build in that additional volume of RINs.”

There are currently 157 RNG projects in operation in the United States, RNG Coalition CFO David Cox said. That number is expected to nearly double in the coming years, with 76 projects under construction and 79 in development. 

There is room to grow, he added.

“I can tell you that we have identified 43,000 sites in the U.S. and Canada where organic waste is aggregated today,” Cox said. “So when we’re talking about around 300 RNG projects, we are just scratching the surface of potential.”

The bulk of RNG developments in operation are at landfill sites, but the number of livestock and agricultural sites is expected to grow in the coming years, he said. When the agricultural projects come online, they could displace landfill gas because the RNG produced is expected to have a better carbon score.

[NGI’s natural gas price indexes have included trade data from both price reporters and the Intercontinental Exchange (ICE) since 2008. Find out more about our price index data here.]

“They’re going to come in and displace that volume, which is going to make landfill gas cheaper and more available for markets outside of California, Oregon, Washington, British Columbia and Canada,” all of which have alternative fuels programs, he said.

Cox also addressed the recent International Energy Agency (IEA) report outlining the need for drastic cuts to oil and gas development for the world to reach net-zero carbon emissions by 2050. Under the scenario laid out, the RNG sector would see enormous growth, expanding to 20% of the natural gas grid as fossil gas declines. At least 2,100 projects would be needed by 2030, with production amounting to seven times 2020 levels by 2030 and 27 times 2020 levels in 2050. 

“The exponential growth that’s going to be required, the demand is really going to be driven by industrial, residential, commercial customers,” Cox said.

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